Genomatica Part of Biorenewables Pivot
BIOTECH: Lack of Market For Biofuels Spurs Flexibility
By MEGHANA KESHAVAN, April 14, 2014, San Diego Business Journal, www.sdbj.com
Biofuels don’t hold the same cachet or glamour they once had, but companies like San Diego’s Genomatica Inc. are showing that the market opportunity is still there for biorenewable products. In particular, specialty chemicals and nutritional supplements are proving to be economically viable industries in the sustainability space.
These companies use natural substances like algae, corn and discarded sugar cane fibers to produce crude oil or industrial chemicals. But while the technology hasn’t yet matured to a point where biofuels are cheaper or even cost-competitive with natural gases – a recent rise in fracking has taken the pressure off of energy securities – smaller scale production of globally traded chemical, nutritional and even pharmaceutical commodities has become profitable.
“There was a lot of hype and enthusiasm around alternative fuels, but it’s cooled off since the recession,” said Martin Sabarsky, CEO of Cellana Inc., a San Diego-based company that is developing algae-based biofuels, nutritional supplements and animal feed. “The biorenewables story has gone way beyond fuel because we’ve had to adapt to market realities. In the process, we’ve found ways to add value by making things that are more green, but don’t cost more green.”
Plants and microbes are very efficient at converting feed stocks like sugar cane and corn into a variety of usable molecules. Fermentation, for instance, is one of the oldest chemical processes in the world used by humans – by breaking down sugar, alcohol has been produced for millennia. Biorenewable companies are expanding on this premise, using biotechnology to genetically alter the microbes so they produce any number of alternate chemicals.
Plastics From Plants
Privately held Genomatica continues to attract accolades and millions in funding from investors, largely in the big oil and petrochemical industries. It is commercializing its plant-based version of butanediol, a costly but ubiquitous chemical that is an important component of the plastics and polyesters that make up water bottles, sports apparel and even computer parts. The global butanediol market was about $4.7 billion in 2013, according to a recent report from Grand View Research Inc. It’s expected to grow to $6.9 billion by 2020.
Historically, these plastics have been made with petrochemicals in high pressure refineries, but Genomatica offers a sustainable alternative, developing millions of pounds of the chemical in its Tennessee plant. Christophe Schilling, CEO of Genomatica, said his company’s process for developing butariediol sustainably is Jess costly than the standard industrial processes going on today.
“We offer better economics, a smaller environmental footprint – and it’s the exact same chemical,” Schilling said
And butanediol isn’t the only esoteric big-buck chemical that Genomatica is developing. It’s now working on developing and scaling up production of butadiene, a major component of the rubber in tires – a global market currently around $22 billion that’s expected to expand to $32 billion by 2018.
Genomatica, which is developing bacteria that have been genetically engi neered to produce the chemical, has more than $100 million in industry support from major players like Brazil’s Braskem. In addition to providing research and development support, Braskem will fund the development and operation of a pilot butadiene plant.
Genomatica now licenses its technology to Germany-based BASF SE, the world’s largest chemical company, as well as Novamont SPA, a sustainability-minded maker of industrial chemicals in Italy. And the future is promising: Coca Cola Co. (NYSE: KO), for instance, has made a commitment that by 2020 all of its plastic bottles will be made with this plant-based technology.
Balancing Biz Model and Technology
Cellana is taking a waste not-want not approach; it’s developing a multitasking algae strain that is able to produce biofuel, animal feed and a nutritional supplement rich in omega-3 fatty acids. Though based in San Diego, the company’s algae farms are in Hawaii.
Sabarsky said his rationale is that if a clean-tech company wants to deliver products that aren’t and don’t need to be subsidized, it needs a more nuanced combination of business model and technology – and make sure to harness all the capabilities a single strain of algae can afford.
That said, Cellana continues to work diligently in the biofuels space. It signed a $100 million multiyear deal last June with Neste Oil Corp. (OTC: NTOIF), a Finnish oil refining company that has a growing stake in renewable fuels. If Cellana is able to scale up its production capacity, which it expects to by late 2015, Neste will buy large volumes of its algae-based crude oil. The pivot into other sectors helps keep the biofuels business afloat, but the time is still fast-approaching for biofuels to become mainstream.
Algae Capacity Driving Use
The biggest name in San Diego’s algae-based biofuels scene is Sapphire Energy Inc., which has raised more than $350 million over the course of five years to curate its sprawling algae farms.
But even Sapphire’s backers are veering away from biofuels and into nutritional supplements – and ultimately pharmaceuticals. Last September, its founders launched a startup called Triton Algae Innovations, with $5 million in Series A funding, that is developing genetically modified algae that could help the stomach fend off viruses and bacteria.
The rationale for sidestepping into supplements and therapeutics stems from the current output capacity of algae, which uses photosynthesis to convert carbon dioxide and sunlight into energy, said Stephen Mayfield, a University of California, San Diego researcher and Triton co-founder.
“For fuel, algae is very high volume but very low margin,” Mayfield said. “But for developing therapeutic proteins, it’s very low volume but very high margin.”